Income before taxes for financial reporting usually differs from taxable income reported to tax authorities.Which of the following is/are not true?
A)Some of the differences may arise because of permanent differences (items that affect income for financial reporting but never affect taxable income, or vice versa).
B)Some of the differences may arise because of temporary differences (items that affect income for financial reporting in a different period than for tax reporting).
C)The difference between income tax expense and income tax payable represents the tax effects of permanent differences: either the firm will receive future benefits (deferred tax assets) or it must pay future taxes (deferred tax liabilities).
D)U.S.GAAP and IFRS require firms to measure income tax expense based on income for financial reporting (excluding permanent differences) and the income tax authorities impose taxes on taxable income.
E)all of the above

Question

Quizplus · Accepted Answer

C is not true because the difference between income tax expense and income tax payable actually represents the tax effects of temporary differences, not permanent differences. Permanent differences affect either taxable income or financial income but do not lead to deferred tax assets or liabilities.

Income Before Taxes for Financial Reporting Usually Differs from Taxable